Spanish aid supports market sentiment

Modest gains in risk assets today were likely a result of news from the European Finance Ministers meeting, form which investors learnt that €30 billion of aid is to be directed towards Spanish banks by the end of the month. The funds represent a front loading of the €100 billion in emergency loans that have already been offered to Spain’s financial sector, although the acceleration of the program was welcomed by the markets. Spain was also granted some concessions on its deficit reduction targets, gaining an extra year (now until 2014) to reach its target annual deficit of 2.8% of GDP. Spanish bond yields eased slightly, falling below the 7% level they breached yesterday to trade around 6.75% throughout the day. Whilst stocks were slightly higher, the euro fell around 0.5% against the dollar to $1.226 to historic lows.

The outgoing CEO of Barclays, Bob Diamond, voluntarily chose to give forego all of his deferred bonuses, long term share awards and this year’s annual bonus. Whilst he is still in line to receive around £1.5m to £2.0m in severance pay, he is purportedly waiving around £20m in benefits. Shares reacted positively on the news, gaining around 2% from their depressed levels following the news and ongoing investigations into the bank’s possible manipulation of interbank lending rates.

A deterioration in sentiment towards the latter hour of trade occurred as the Italian Prime Minister Mario Monti suggested in a parliamentary speech that Italy may at some point in the future need to tap the ESM, Europe’s permanent bailout fund. Whilst he was clear that Italy would never require a “Greek-style” bailout, he did reiterate that there may be a place for the ESM to buy Italian sovereign debt to keep a cap on the country’s borrowing costs.

The FTSE 100 finished around 0.7% higher at 5664, in line with major European indices and ahead of those in the US where the S&P was in negative territory whilst the Dow Jones was marginally higher.

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